“There never was a $600 hammer,” said Steven Kelman, public policy professor at Harvard University’s John F. Kennedy School of Government and a former administrator of the Office of Federal Procurement Policy. It was, he said, “an accounting artifact.”
The military bought the hammer, Kelman explained, bundled into one bulk purchase of many different spare parts. But when the contractors allocated their engineering expenses among the individual spare parts on the list - a bookkeeping exercise that had no effect on the price the Pentagon paid overall - they simply treated every item the same. So the hammer, originally $15, picked up the same amount of research and development overhead - $420 - as each of the highly technical components, recalled retired procurement official LeRoy Haugh. (Later news stories inflated the $435 figure to $600.)